Third Quarter Highlights:
-- Revenue increased 66% compared to 3Q 2006 revenue of $12.6 million
-- Net Income decreased 3% compared to 3Q 2006 net income of $2.2 million,
for earnings of $0.14 per diluted share
GUANGZHOU, China, Nov. 12 /Xinhua-PRNewswire-FirstCall/ -- China Medicine Corporation (OTC Bulletin Board: CHME), a leading distributor of medical products, traditional pharmaceutical and Chinese medicines, herbs and dietary supplements, today announced financial results for the quarter ended September 30, 2007.
Revenue for the third quarter of 2007 increased 65.72% to $12.6 million compared to $7.6 million for the third quarter of 2006. Revenue from product sales for the third quarter 2007 was $11,904,525, an increase of $5,537,906, or 87%, from revenue of $6,366,619 for the third quarter of 2006. The company obtained exclusive regional distribution rights in China's Guangdong Province for 160 new products during the first nine months of 2007.
Medical formula sales were $684,413 and $1,229,912 for the three months ended September 30, 2007 and 2006, respectively. These amounts represent proceeds from the sale of certain technology and know-how relating to the production of medicines. We initially acquire the technology in an undeveloped state from other companies, undertake research and development to make improvements, and sell the improved technology to other drug manufacturers. The primary reason for the decrease in medical formula sales is that fewer new customers have signed contracts for medical formula sales in 2007. We believe this is due to action by the State Food and Drug Administration ("SFDA"), which must approve every transfer of ownership of a medical formula in China, and which recently enhanced its approval procedures by setting higher application criteria which require more time for review.
Gross profit for the third quarter of 2007 was $3,823,461, an increase of $716,985, or 23%, from $3,106,476 for the third quarter of 2006. Gross margin for the third quarter of 2007 was 30.37%, as compared with 40.89% for the third quarter of 2006. The decrease in gross margin was due primarily to increased sales of over-the-counter products in the third quarter of 2007, which have lower margins than the prescription drugs and other products we sold in the third quarter of 2006; and decreased medical formula sales in the third quarter of 2007, which have much higher margins than the regular products sales.
Research and development expenses were $336,794 for the third quarter of 2007 compared with $31,361 for the third quarter of 2006. In both periods, these expenses were used primarily for the pre-clinical study of the Yutian capsule, a traditional Chinese medicine designed for use in the treatment of lung cancer.
Selling, general and administrative expenses were $830,518 for the third quarter of 2007, an increase of $645,001 from $185,517 for the third quarter of 2006. The increase was mainly caused by the increased expenses in payroll and sales bonuses to sales representatives, marketing expenses, office rent and furnishings, transportation and trade shows.
Net income for the three months ended September 30, 2007 was $2,205,914, a decrease of $71,465 from $2,277,379 for the comparable period in 2006. The decrease was due primarily to increases in selling, general and administrative expenses and research and development expenses.
As of September 30, 2007, China Medicine had working capital of $23,574,193, an increase of $13,715,998, or 139%, from $9,858,195 as of September 30, 2006. The company received $5.7 million proceeds through the exercise of warrants during the first nine months of 2007, which increased the company's working capital. The company used cash of $1,844,778 in operations for the nine months ended September 30, 2007, an increase of $1,148,801 from the cash used for the comparable period of 2006. The increase in net cash used in operating activities was largely due to the increase of advances to suppliers and inventories related to our increased quantity of sales.
"Our third quarter results were consistent with our internal expectations," explained Mr. Senshan Yang, CEO of China Medicine. "We sold more OTC drugs during this quarter, which lowered our profit margin. But this is just a temporary result. We expect our profit margins to improve through our efforts to increase the sales of high-margin products, proprietary products and medical formulas in accordance with our long-term sales strategy. Our administrative expenses were relatively high in the third quarter because we obtained exclusive distribution rights in Guangdong Province for over 160 products from the beginning of this year. Greater expenditures are typically needed for the marketing of such new products, and these expenses will be decreased once the sales network is set up." Mr. Yang added, "we are undertaking a search for a bi-lingual CFO and a qualified investor relations firm, so that we may better communicate with investors, integrate our financial system and enhance our internal control system. We are confident of having a great year in 2007 and we expect continuing success in 2008."
About China Medicine Corporation:
China Medicine is a distributor of medical products, traditional pharmaceutical medicines, traditional Chinese medicines, Chinese herbs and dietary supplements to over 28 provinces and 800 customers within China. The Company sells more than 2,200 products and is actively building a pipeline of proprietary traditional and Chinese herbal remedy products targeting oncology, high blood pressure and the removal of Aflatoxins from food and animal feed. For more information visit the Company's website at http://www.chinamedicinecorp.com .
Safe Harbor Statement:
This press release contains forward-looking statements concerning China Medicine Corporation's business and products. Actual results may differ materially depending on a number of risk factors including, but not limited to, the following: general economic and business conditions, contingencies regarding product development, events affecting the speed and quality of shipment and delivery, market acceptance, additional competition from existing and new competitors, changes in technology, and various other factors beyond its control. All forward-looking statements are expressly qualified in their entirety by this Cautionary Statement and the risk factors detailed in the Company's reports filed with the Securities and Exchange Commission. China Medicine Corporation undertakes no duty to revise or update any forward-looking statements to reflect events or circumstances after the date of this release.
CHINA MEDICINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2007 AND DECEMBER 31, 2006
A S S E T S
September 30, December 31,
2007 2006
Unaudited
CURRENT ASSETS
Cash $4,128,170 $371,480
Accounts receivable, trade, net of
allowance for doubtful accounts
of $35,401 and $34,021 as of
September 30, 2007 and December 31,
2006, respectively 8,992,953 7,034,911
Inventories 5,231,818 1,900,467
Advances to suppliers 6,300,078 4,077,412
Other current assets 86,576 42,136
Total current assets 24,739,595 13,426,406
EQUIPMENT, net 1,293,904 1,215,311
OTHER ASSETS -- Intangible assets, net 134,054 682
Total assets $26,167,553 $14,642,399
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
CURRENT LIABILITIES
Accounts payable, trade $320,220 $188,877
Other payables -- related parties 65,132 30,000
Other payables and accrued
liabilities 9,878 23,265
Customer deposits 343,972 17,980
Taxes payable 382,197 295,902
Liquidated damages payable 44,003 44,003
Total liabilities 1,165,402 600,027
MINORITY INTEREST 895,033 908,480
SHAREHOLDERS' EQUITY
Preferred stock, $0.0001 par value;
10,000,000 shares authorized,
606,255 shares issued and
outstanding at September 30,
2007 and 2,340,000 shares issued
and outstanding at December 31, 2006 61 234
Common stock, $0.0001 par value;
90,000,000 shares authorized,
13,306,738 shares issued and
outstanding at September 30, 2007
and 8,160,000 shares issued and
outstanding at December 31, 2006 1,331 816
Paid-in capital 10,372,647 4,396,971
Contribution receivable (961,500) (961,500)
Statutory reserves 1,345,206 1,345,206
Retained earnings 12,076,011 7,979,242
Accumulated other comprehensive
income 1,273,362 372,923
Total shareholders' equity 24,107,118 13,133,892
Total liabilities and
shareholders' equity $26,167,553 $14,642,399
CHINA MEDICINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
(Unaudited)
FOR THREE MONTHS ENDED FOR NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2007 2006 2007 2006
REVENUES
Product sales $11,904,525 $6,366,619 $24,552,269 $13,856,558
Medical formula sales 684,413 1,229,912 1,393,632 1,589,136
Total revenues 12,588,938 7,596,531 25,945,901 15,445,694
COST OF GOODS SOLD 8,765,477 4,490,055 18,029,902 9,910,331
GROSS PROFIT 3,823,461 3,106,476 7,915,999 5,535,363
OPERATING EXPENSES
Research and
development 336,794 31,361 437,449 270,702
Selling, general and
administrative 830,518 185,517 2,435,288 1,084,194
Reverse acquisition -- -- -- 931,270
Total operating
expenses 1,167,312 216,878 2,872,737 2,286,166
INCOME FROM OPERATIONS 2,656,149 2,889,598 5,043,262 3,249,197
OTHER INCOME (EXPENSE),
NET 13,694 (136,645) 3,604 (143,757)
INCOME BEFORE INCOME
TAXES AND MINORITY
INTEREST 2,669,843 2,752,953 5,046,866 3,105,440
PROVISION FOR INCOME
TAXES 480,458 475,574 1,018,743 729,831
INCOME BEFORE MINORITY
INTEREST 2,189,385 2,277,379 4,028,123 2,375,609
MINORITY INTEREST 16,529 -- 68,646 --
NET INCOME 2,205,914 2,277,379 4,096,769 2,375,609
OTHER COMPREHENSIVE
INCOME
Foreign currency
translation
adjustment 341,114 128,142 900,439 199,840
COMPREHENSIVE INCOME $2,547,028 $2,405,521 $4,997,208 $2,575,449
Earning per share
-- basic $0.17 $0.31 $0.35 $0.33
Earning per share
-- diluted 0.14 0.29 $0.30 $0.31
Weighted average number
of shares outstanding
-- basic 13,306,738 7,380,000 11,585,981 7,250,926
Weighted average number
of shares outstanding
-- diluted 15,586,809 7,749,000 13,866,051 7,563,893
For more information, please contact:
Company Contact
Lin Li
Tel: +1-732-438-8866
Email: zhlin922@yahoo.com
